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Bank of the South. What does it signify? Source: Argentina Presidency Website

Even though published more than a quarter century ago, Eduardo Galeano’s book The Open Veins of Latin America still exerts a tremendous influence on today’s politics in South America. Various policy makers in the region have quoted excerpts of the book in their speeches in order to remind the world of centuries of foreign intervention and exploitation. Hugo Chávez, another historic figure head for left-leaning intellectuals and politicians, praised the book as “ a monument in our Latin American history. It allows us to learn history, and we have to build on this history”.

Indeed in May 2015, another major step in building on the region’s history of economic independence could be made. Build upon the initial idea voiced by Chávez himself in 2004, the South American Banco del Sur will open its doors in the near future, if not this month. The headquarter will be based in Caracas with additional offices in Buenos Aires and La Paz. The bank is interpreted as a response to the discontent with the major international financial institutions, especially the World Bank and the International Monetary Fund (IMF). Ecuador’s Foreign Minister Ricardo Patiño pinpoints the new bank’s purpose as “to bail out a country, small or big, and meanwhile not have to submit to the dictates and conditions of the IMF”.

Both institutions share a troublesome past in the region. Since the 1950s, the so called Bretton Woods institutions backed military dictatorships and assisted in sabotaging democratically elected governments inter alia in Bolivia, Chile, Nicaragua or Argentina. During this time, some of the military dictators accumulated ever increasing mountains of debt, most of which never reached the publicly intended policies. Since arguably most of this financial abuse was known to the lenders of IMF as well as the World Bank, many Latin Americans hold them responsible to complicit in the structural corruption.

Ever since the 1970’s and 1980’s, the peak of public debt contributed to the continuous dependence of various Latin American governments on the institutions’ goodwill. Consequently, even though the days of colonialism as depicted in the Open Veins of Latin America formally ended about 200 years ago, many policy makers in the region reject the continued external interference by the Bretton Woods institutions. Eventually, the United States control the biggest parts of both organizations and have used them as an extension of their foreign policy apparatus. Establishing an own development bank can thus be interpreted as a vital step towards regaining financial and political sovereignty.

Officially launched in 2007 by the former President of Argentina Néstor Kirchner and Hugo Chávez, Banco del Sur would be financed by the reserves of the respective national central banks. So far, Argentina, Venezuela, Bolivia, Ecuador, Uruguay are official members, whereas the national parliaments of Paraguay and Brazil still have to ratify their membership. Regardless economic performance in the region, ranging from BRICS member Brazil to the tarnished oil dependent Venezuela, all members would have an equal share of voting power in the newly established institution. The chief architect of the South American Defense Council, MERCOSUR and to an extent UNASUR, Brazil, so far remains hesitant to commit to the ambitious plans set out by the other, significantly weaker member states in economic terms. Brazil’s ailing president Dilma Rousseff knows that propelling Banco del Sur, would spoil the country’s relationship to the United States, major creditors and investors which are badly needed to uphold its promising growth rates.

Insufficient Blood for Latin America’s Veins

Despite Brazil hesitation, Venezuela’s president Nicolás Maduro revived the idea of his predecessor last month (April 2015) by announcing that the Banco del Sur would after years of planning and construction be inaugurated in May 2015. His initiative may have caused some confusion and refusal among his presidential counterparts, since so far only Argentina, Bolivia, Ecuador and Venezuela have announced their concrete financial commitment to the targeted seven billion US- dollar seed money. Given the ambitious aim of one day being able to handle financial crises in the region without financial support from the IMF, this sum seems rather poor. As a comparison, Bolivia’s foreign debt alone amounts to eight billion US-dollars. Consequently, Ecuador’s President Rafael Correa called for enhanced unity in the region: “it is a paradox that while the countries of UNASUR have deposited 760 billion US- dollar in banks of the so called First World, the region is still dependent of foreign loans and investments”. Given Brazil’s current political will to stay on good terms with major money lenders from Washington, it will most likely not (yet) take the leading role as many may wish for to add efficiency to the newborn Banco del Sur. In the recent past, Brazil has used initiatives mainly by its other main investor China to build parallel structures to the IMF and the World Bank. Hence, apart from its own national development bank, Brazil participates in inter alia the New Development Bank, initiated by the BRICS and is a so-called Prospective Founding Member of the newly-born Asian Infrastructure Investment Bank.

Latin America: Towards a single currency?

Should the South American bank start its business as expected in the near future, it has to agree on a long term role not only for the region as financial investor but also as a player in the world economy. So far, the member states only agreed upon the vague aims of financing local infrastructure projects, assist small- and medium sized companies as well as creating a regional financial backbone for its members. Nevertheless, should the Banco del Sur be attached or integrated into one of the most promising integration projects UNASUR, one day it could work towards creating a single currency for the region as cautiously put forward by Pedro Páez Pérez, who presided the Commission for the Design of Banco del Sur. Even though such proposals seem highly unlikely in the near future in Latin America, only a few predicted the spill-over effects some decades ago which laid the foundations of a single currency in the European Union.

Yet until then, the member states should come up with a common vision for the Banco del Sur. Should the bank restrict its outreach to the region and invest in energy projects for example or be allowed to intervene in events of a currency crises? What happens if one of the members drifts into bankruptcy?

One must not forget that the Banco del Sur finds itself in its infancy yet carries the potential to fulfil its promising role as development bank for the region. Whether it will be able to counter the influence of the IMF and the World Bank in Latin America is uncertain. Eventually, it has the potential to insert fresh blood into the veins of Latin America’s road to economic self-determination.

Simon Schmitz was born in Germany and lived in Bolivia, the Netherlands and Austria. After completing his BA in European Studies at Maastricht University,Simon extended his perspective beyond the European continent and focused on the interconnections between Europe and Latin America. During his Erasmus Mundus Global Studies Master at the Universities of Leipzig and Vienna, he focused on challenges of public governance. Simon joins the Latin America department of the OECD in Paris and will continue to share his viewpoints on pressing issues on the Latin American continent and come up with unorthodox topics of regional and geopolitical relevance.